Hellen & Fordyce v Alex G Grivas Pty Limited

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

4658/02 BRADLEY VINCENT HELLEN & ANN FORDYCE AS JOINT LIQUIDATORS OF AUSTRALIAN COMPANY NO 082 758 263 PTY LIMITED (IN LIQUIDATION) (ACN 082 758 263) v ALEX G GRIVAS PTY LIMITED JUDGMENT 1 HIS HONOUR: The principal proceedings in this matter are brought by the liquidator of a company ("ATC") which formerly carried on an educational establishment in premises at Glebe Point Road, Glebe. Those premises were leased from the defendant in the present application by a related corporation of ATC. 2 In the principal proceedings the matter which is still outstanding concerns a claim by the liquidators that the defendant deliver up to the liquidators some plant and equipment located in those premises, or alternatively, pay damages for conversion of the equipment. The application is stated on its face to be made under s 511 of the Corporations Act. That section allows the liquidator to apply to the Court to determine any question arising in the winding up of the company or to exercise all or any powers that the Court might exercise if the company were being wound up by the Court. 3 The defendant claims to be entitled to some of the plant and equipment which is in the Glebe premises on the basis that it has purchased the particular items, and claims to be entitled to certain other items of plant and equipment under an agreement which was entered into with ATC on 28 June 2002, which the defendant says conferred upon it a right to have a transfer of the goods, or a charge over them, in connection with some payment of rent which was then outstanding. 4 ATC went into administration on 21 August 2002, and into liquidation on 17 September 2002. 5 Today there was listed before me an application by the defendant seeking security for costs of the principal proceedings. The hearing had proceeded to the stage where counsel for the plaintiffs was outlining the grounds of opposition to the order for security for costs when it took a change of direction. Mr Chippindall, counsel for the liquidators, made clear that it was his submission that the Court would not ordinarily make an order for security for costs against a liquidator, but that if a liquidator were to bring an application, and were to lose, the liquidator could be at risk as to costs. Mr Chippindall made clear that he was not suggesting that, if a liquidator were to bring an application, and lose, the principle on which a court would decide questions of costs was anything other than the usual discretionary principle to be decided by reference to the facts of the particular case, but he made clear also that there was no special entitlement to consideration which a liquidator had, by virtue of his position as liquidator, to be relieved of an order for costs which otherwise might be appropriate. 6 Upon hearing this, Mr Segal, counsel for the defendant, after a brief adjournment, elected not to proceed with the application. 7 Thereupon, Mr Chippindall made application for an order for the costs of the application. It is that application for costs which I now decide. 8 Before the application was brought, the solicitor for the liquidator had written to the solicitor for the defendant. Apart from casting doubt on the bona fides of the application (a matter which the defendant, in later correspondence, vigorously rejected) the solicitor for the liquidator said: "Should you be instructed to make the application for security for costs we will rely on this letter to seek an order that your client pay costs on an indemnity basis. There is simply no basis for making an order for security against a liquidator: Ferrier & Knight v Civil Aviation Authority (unreported) Federal Court, 24 March 1994; Re Pavelic Investments Pty Limited (1983) 1 ACLC 1207; Jonas v Rocklea Spinning Mills Pty Limited [2000] VSC 93. The Court, in declining to grant security, will also have regard to the fact that if an order for security for costs were made it would effectively shut our client out of relief in circumstances where the company's impecuniosity is itself a matter which the proceedings will cure." 9 This last sentence refers to the fact that ATC is quite clearly insolvent, and had a deficiency of assets to a very significant degree, of numerous hundreds of thousands of dollars. 10 The first of the cases referred to in that letter, Ferrier & Knight v Civil Aviation Authority, is a decision of Lockhart J given on 28 February 1994. It concerned an application by the liquidator of Compass Airlines to recover a preference alleged to have been received by the Civil Aviation Authority. In the proceedings before Lockhart J the liquidators failed. They argued that, notwithstanding that they had failed, they should not be required to be personally liable for the costs of the Authority. Lockhart J rejected that argument. He said, at paragraph [13]: "The authorities draw a distinction between cases in which the liquidator personally is the plaintiff and those where the company is the plaintiff, although controlled by the liquidator. In the former case the liquidator, like other litigants, is liable to pay costs personally, though he may have recourse to the assets of the company to satisfy that liability in appropriate circumstances, and the liquidator is not liable (at least generally) to an order to provide security for costs. On the other hand, where the company in liquidation is the plaintiff, the liquidator is not liable to pay costs and the company is liable to an order to provide security for costs: see Hession v Century 21 South Pacific Limited (In Liquidation) (1992) 28 NSWLR 120 ; Re W Powell and Sons (1896) 1 Ch 681; Re Wilson Lovatt & Sons Limited (1977) 1 All ER 274; Re Speedifix Building Products Pty Limited (In Liquidation) and the Companies Act (1987) 5 ACLC 866; Re Buena Vista Motors Pty Limited (In Liquidation) (1971) 1 NSWLR 72 ; Re Pavelic Investments Pty Limited (1983) 1 ACLC 1207; Re Strand Wood Company Limited (1904) 2 Ch 1; Re W Powell and Sons (1896) 1 Ch 681." 11 His Honour also said, in paragraph [15]: "There is some division of opinion in the cases (though not very much these days) as to whether these rules are absolute or only of general application. The underlying rationale is plain enough however, that since the liquidator (not the company of which he is liquidator) is the proper applicant in proceedings to recover preferences, he is not amenable to orders for security for costs; but the respondent should not be in jeopardy for his costs and should be entitled to his costs against the liquidator personally, leaving it to the liquidator to ensure that he has sufficient assets to meet any order for costs that may be made against him". 12 The first of the cases referred to by Lockhart J, Hession v Century 21 South Pacific Limited (In Liquidation) is a decision of the New South Wales Court of Appeal, where Meagher JA (with whom Kirby P and Cripps JA agreed) stated the proposition which Lockhart J had set out at paragraph 13 of his judgment. 13 The second of the cases referred to in the letter of the liquidators' solicitor, Re Pavelic Investments Pty Limited, is one where a liquidator was bringing proceedings under s 367B of the Companies Ordinance 1962 of the ACT, alleging that former directors of the company were guilty of negligence, default or breach of duty. Blackburn CJ refused to order security against the liquidator, saying, at 1207-1208: "The foundation of my decision on this application is that the Court should apply what appears to be a rule of practice so inveterate as to be almost a rule of law, namely, that the liquidator of a company, appointed by the Court, is not required to give security for costs save for very exceptional circumstances. I need not set out all the authorities to support this: the leading case is Re Strand Wood Company Limited (1904) 2 Ch 1. The rationale of the rule is partly that the liquidator is performing a public function on behalf of all of the creditors and directors of the company, and partly that it is within the province of the Court in the appropriate case to award costs against the liquidator personally." 14 The third of the decisions referred to by the solicitor for the liquidators, Jonas v Rocklea Spinning Mills Pty Limited is a decision of Mandie J in the Supreme Court of Victoria. It was a case where security was sought from a liquidator who was seeking to recover a payment under s 588FF of the Corporations Law (which deals with the avoiding of voidable transactions). The application for security had been dismissed by a Master on the ground that there was no evidence that the liquidator would be personally unable to meet any order for costs made against him personally. An appeal was brought to a judge, from that order of the Master. That appeal itself was dismissed. Mandie J said, at [5]: "I have no doubt that the Court has jurisdiction to make an order personally against the liquidator if the liquidator fails in such an application. My understanding of the practice would be that if a liquidator failed in such an application the costs would normally follow the event and an order would be made against the only person who appeared on the record. It is not my understanding that it is the practice in such a case for the Court to make an order that the costs of a successful defendant be paid out of the assets of the company, although no doubt the Court has jurisdiction to make such an order if it saw fit but it is not, as I understand it, the usual practice. I am certainly not aware of any rule that protects a liquidator from an order for costs, and in that regard I think that what was said by Mr Justice Roma in Re W Powell & Sons [1896] 1 Ch 681 is applicable in this State and under these provisions." 15 Mandie J went on to disagree with a view which his Honour thought may have been expressed by Rolfe J in Starr v National Australia Bank [1999] NSWSC 353. The view which Mandie J tentatively attributed to Rolfe J in that case was that s 1335 of the Corporations Law (a section which enables the Court to make an order for security where a corporation is plaintiff in any action ) was one which could apply in a situation where a liquidator was bringing an application under s 588FF. Mr Segal submitted that the decision in Starr v National Australia Bank Limited showed that there was room for argument about whether the principles concerning a liquidator's liability to pay costs, and amenability to an order for security for costs, were as straightforward as Mr Chippindall contended. 16 It seems to me that the decision in Starr v National Australia Bank Limited needs to be read by reference to the particular facts there being considered. In that case, a liquidator was making an application to set aside a preference. That application had, however, been listed for hearing with three other proceedings raising related issues, which had corporate plaintiffs. Further, the matter was presented to the Court (as Rolfe J records at [2]) on the basis that the plaintiffs (ie, including the liquidator) did not dispute jurisdiction of the Court to order security as the corporate plaintiffs were insolvent. It was not a case where it was, so it seems, regarded as a live issue that the liquidator himself might have been liable to pay any costs, and therefore that his liability to pay costs was a reason for not providing security. The argument before his Honour turned rather on whether the tendency of an order requiring security to stifle litigation was a reason for not making such an order. Rolfe J at [23] decided the question which was posed for his decision by the way the parties had presented the case by saying: "Mr Gray submitted that the liquidator should not be required to provide security personally. I am inclined to the view that it is correct insofar as it means that the liquidator should not be required to provide security from his own personal funds. However, in my opinion, a liquidator faced with such a position may be required to provide security provided he can obtain an indemnity from creditors." 17 Thus, I do not regard Starr v National Australia Bank Limited as providing an authority which is against the principles laid down in Hession, Ferrier v Civil Aviation Authority, Re Pavelic Investments Pty Limited and Jonas v Rocklea Spinning Mills Pty Limited. 18 In my view the substance of the approach which Mr Chippindall outlined to the Court was articulated in the letter which the liquidators' solicitor wrote. It was not articulated as fully as Mr Chippindall articulated it, but nonetheless the cases to which express reference was made did articulate it. 19 In these circumstances, it seems to me that the basis upon which opposition to the application would be made, and which the defendant saw the force of this morning, was adequately outlined prior to the application being made. 20 In these circumstances, and when the defendant has elected not to proceed with its own application, it is appropriate for the defendant to pay the costs of the plaintiff of the present application. 21 Mr Chippindall sought, faintly, to have the order for costs made on an indemnity basis. There is no reason for departing from the usual order for payment of costs in the present case. 22 I order the defendant to pay the costs of the plaintiffs of the present application. The application is dismissed. 23 Mr Chippindall seeks an order under Part 52A Rule 9 of the Supreme Court Rules that the costs be paid forthwith. 24 Part 52A Rule 9 provides: "Where before the conclusion of any proceedings, other than proceedings entered in the Commercial List or the Technology and Construction List, the Court makes an order for the payment of costs or a motion is refused with costs, the costs shall not, unless the Court otherwise orders, be payable until the conclusion of the proceedings." 25 In the present case there is not established, by the evidence, any reason for departing from the prima facie position which the rule sets out. There is no suggestion that the defendant might abscond, or is in a precarious financial position, nor indeed any other reason for departing from the usual position. The reason in favour of the prima facie position, namely that it is wasteful to have the costs of interlocutory applications taxed separately, and paid separately rather than dealing with all matters of costs at the one time, applies here. I decline to make an order altering the prima facie position under Part 52A Rule 9. **********

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